Add Recapitalization Agreement Mark with airSlate SignNow

Add Recapitalization Agreement mark

welcome to the m a unplugged podcast our mission is to help you be better prepared for your business acquisition or sale being prepared will ensure you maximize returns and minimize risks this is m a unplugged with your host dominic rinaldi [Music] welcome back i'm dominic rinaldi host of the m a unplugged podcast my guest today mark walstoni has over 30 years of hr mergers and acquisitions experience he has seen it all and helped companies of all sizes plan for and manage their hr due diligence and integrations he has also had to help lots of companies undo the mess caused by a botched integration integration is gaining more and more steam and you'll hear mark mention that more and more acquirers are now asking how to do integration these days compared to years ago where they were asking why as we covered in an earlier episode with jim jeffries over 70 percent of acquisitions fail to meet their roi targets hopefully that stack gets your attention diligence and integration should have equal weighting in any acquisition mark shares his high level formula for approaching this phase along with how to avoid some of the common pitfalls mark is an expert in his field and this episode will surely help you be prepared for your next acquisition if you really want to avoid the common deal pitfalls and the risk of losing substantial dollars you need to know how ready you really are to buy a business because i believe proper preparation is so critical to your deal success we have published several free resources to help you be better prepared you can access these resources on our website at k2advisor.com forward slash resources being prepared is critical to ensuring that you maximize your returns and you minimize your risks thank you for being here and hope you enjoyed today's episode hey mark welcome to m a unplugged so happy to have you here yeah thanks dominic i really appreciate you asking me to join i'm a fan of the show and i'm looking forward to it well thank you for that you know so i'm really excited and interested to get in today's conversation which is about integration diligence specifically related to the human capital piece and you know it's really been picking up steam as i mentioned in my intro i mean integration and getting it right really matters and and uh more and more people are understanding that if you don't get that right you've squandered your investment in a big way and so we're going to dive into it but before we do maybe you can provide just a quick background er on yourself and what you've done and and then we'll get into it yeah so dominic i i completely agree with you i've noticed that myself and what i based that on is really over 25 years as both chief hr officer for large organizations and then another 15 years in the consulting world i've i've always seen an interest in it but very often the question was why i think the question now is how um [Music] you know what a great distinction why and now how so it that's confirmation that the needle's moving it's getting through to people that you can't you can't really get this wrong you know when i myself have been involved in so many transactions i've seen when it works well and i've seen when it doesn't work well and you know not to get started you know off on a on a note where you know people are going to go oh my god i'm never going to do a transaction but do you have a horror story do you have an example that sticks out for you where you're like oh my god they just they got it wrong from an hr integration culture perspective and maybe we can unpack that a bit yeah sure and and everyone has a train wreck story so as you might imagine mine are people related i'd say often when i get involved it's for merger repair we didn't do hr due diligence now we've known those we've known them for a while meaning the senior executives and and we just thought it was uh a fit you know we're just it's a culture fit at the high level but maybe the where the work needs to get done and how people treat customers and and each other it's a different situation or the culture is uh operates one way when everything's steady state but then you put pressure on it people start reacting in different ways because they're concerned they're afraid and who today wouldn't see an acquisition it's just you know one other brick in the backpack one other thing to worry about so one of the first ones that comes to mind is really a large acquisition where uh again that there was overconfidence in we really know these guys and we'll figure it out so after the deal closed then uh what they found were more people doing things in different places that they knew about uh they also found that the certain executives were causing more turnover and as a result when this whole when the integration process started people were really sitting up in the grandstand and saying well i'm just going to wait and see how this sorts out you know i don't agree with this no one's talking to me about it i'm just going to sit on the sidelines which is the worst worst outcome oh my goodness without a doubt and uh did the deal unravel as a result or was it salvaged at the end of the day yeah i it it was salvaged in a sense let me tell you what i mean by that um essentially it was a redo of diligence after the deal was closed yeah and the result there was organization structure changes leaders left the organization and eventually um rather than being a standalone the organization integrated into their company and essentially took pieces out of it it wasn't what they wanted to do but it was just at the point where they realized they can't run independently anymore yeah wow what a shame what a shame you put uh people's livelihoods at risk you've put your investment at risk there's never a good outcome so mark i know you've got years and years of experience helping companies do this let's talk about the three four five things or the best practices when somebody's thinking about hr due diligence and integration what should they be thinking about at the highest levels so at the highest level and uh yeah i'm glad you didn't let my youthful appearance fool you dominic i've been doing this for a while um there's really four transitions people need to work to think about i won't say worry about think about and one is kind of the basic org structure are the right people in the right jobs in the right locations and you know this is one of those things that get back to you know being the best company is that looking at that type of thing and and then also leadership selection again now you have if you're gonna have an integration um you know there's two people for each job maybe there's some jobs that are different so you have to think about that specific uh change and so that that and if i was going to take that into due diligence then you're looking at org chart structures but you're also looking at something else you're looking at key influencers where the people that aren't really on the org chart per se at a higher level but they're the ones that people go to to ask questions they're the ones that at the end of the day you know joel will say to mary or or mary i'll say to tom uh what do you think about this thing is this for real is this going to happen am i going to lose my job so it's looking at the organization in a traditional way top down command and control and then it's also looking at it as a network and that network has to include understanding the senior managers because they're going to excuse me the middle managers because they're going to be key to the actual deal getting done and part of the reason i say that i'm just going to jump to the second one here is the employee transition and you pointed out earlier dominic the first question is what's in it for me and the second one is what's needed for me um and that then gets to the the fear and anxiety piece of of this it's the actual employee transition so uh one of the things to look at there is what's changing for whom and how you know there's going to be change but where are the areas so for example are the sales people going from individual selling to more of a team sale model is their compensation going to change that's going to have to be a tremendous hit in terms of something to manage and then how are you going to communicate during that change because people are going to go through endings you know what what did i have in the other organization i don't have now what's beginning for me and hopefully there's some things there people get motivated about and then there's that whole messy middle some people call it wandering in the wilderness and i think if you're focusing on that individual change people are going to get through that wilderness quicker and they're not going to have a as big of a drop in productivity so those are two things again the organization the individuals and then on the culture side and you know you there's a lot of definitions of culture and values attitudes that i try to look at it from a behavior standpoint what do people actually do so it's getting evidence and due diligence of how things are written employee handbooks communications how often does the management communicate and how top down email to everyone is it's something where there's town halls and there's feedback and all those things because that's you know that's that's really going to give a sense of what need what can be improved and also what can really show employees that there's some good things happening there's some good changes yeah so yeah very critical and then the then the fourth piece and i think in in a lot of ways dominic this is where people really understand the acquisition process and integration um almost more than any other step and that is who's getting hired who's getting promoted who's getting listened to and who's getting terminated because those are the things you know get the message aside this is the actual evidence of of who is what type of personality what type of leadership style is really the one that matters in the combined organization that's an awful lot but if i'm if i'm boiling it down again i would say it's change culture um capabilities you know do people have the capabilities to to do what's necessary in the integration process as well yeah yeah i think those are great points you know i especially love the key influencer comment because you know in every organization there's the management team and then there are there are people that folks go to you know that they really rely on uh and maybe they don't even have a management role but they're sort of just in the know and they influence thinking or they have somebody's ear in management and um i think that's a really good point so just a couple practical ideas on that dominic is often after work with the clients to identify some of these folks we bring them in to under the tent to pre-screen employee communications we review faqs uh with them we use them as listening posts and we develop messages for them you know i mean it's a two-way communication but it may be some of the bullets that at the senior management level are you know at the 10 000 foot level but then the key influencers they're right on the you know they're right on the shop floor so we really we really actively involve them and we also bring them in if it's a large enough acquisition where you have a project management office and work teams we be sure to get the key influencers on some of those teams because then when someone says hey i don't know i haven't heard anything i don't know what's happening you have someone who has either knows it from experience of being on a team or they're hearing the you know the key messages and what's next um in person from a group yeah key uh just a key area and i would also say too when it's completely understandable if we think about change you know endings and beginnings by the time the deal closes all the senior executives have been through that entire cycle themselves they know what's going to happen to them they know what's in it for them all those things so to some extent they're kind of done on day one whereas the average employee maybe is just yeah they're still in that what just happened to me stage yeah for sure yeah yeah i think that's a i think it's a really good point and senior managers can't forget about that right they can't forget that they're in the know whether they're you know recapitalizing and they've got rollover equity and they're going to continue with the new entity or they're exiting stage left and they're leaving it to a new management team they understand that they know what hand they're playing but the employees don't and uh it's so critical you know and mark it's so interesting because i you know i've seen so many deals and there's a couple that come to mind i mean recently i had a client who uh who went out and and acquired a company to diversify and they really took the time to go through the integration and think about the people and how they were going to end they were moving the operation into their facility so it wasn't like they were just taking over an operation it was going to stand alone they were moving people and to their credit they nailed it they kept every single one of the employees except for the people who didn't want to come who opted out of moving to the new entity because they were ready to retire or what and fast forward to today that business is doing incredibly well it's been incredibly accretive they've kept everybody and they have now a seamless operation and i compare that to another situation that we had where a corporate entity came in took over an operation was left in its facility but came in and mandated all of these changes based on the way they did business sure completely ignoring how that business operated and dealt with its clients and what that businesses clients were used to yeah and i will it will not be it will not shock you but that business was a fraction of itself a year later i think it had declined by almost 80 percent and here's how you know it wasn't the business it was really the folks who bought it uh the old management team bought it back and brought it right back to where it was before yeah i've certainly so there's a crazy example but go ahead yeah yeah crazy but true and i guess the the lesson learned that pops out of there for me and i've seen it as well as yeah really starting with that deal thesis and looking at the secret sauce especially for more of an early stage deal yeah because um you know i guess that's tha that's one of the primary risks is you know is killing that golden goose and then thinking about what's the integration strategy because if you're if it's going to be a standalone maybe the whole cultural shift in all those things is really going to be more at the level of the senior executives because not much is going to be changing for for other people yeah but then full integration like your your first example change in facility um perhaps change in supervision certainly that visibility integration that's uh you know that's the piece on the deal that that says it's it's going to be really important to look at all those factors and come up with a plan again you know communications culture change and capabilities yeah you know and the stakes are high i had uh jim jeffries on uh not too long ago yeah and um he you know he talked about how 70 of acquisitions miss their roi targets uh it doesn't mean they don't return roi it just means they missed their targets the stakes are high i mean that's an incredible percentage to be missing their roi target so it tells you there's more to be done in this area of integration and especially when it comes to the people i believe so and again it's when i think about people one of the questions to ask is how important is people adoption to the deal yeah and if it's again if it's a if something's an add-on maybe maybe adoption doesn't mean as much to 80 of the employees but then if if the deal's not going to work unless everyone is if not on board ideally not only on board but committed and engaged right then uh you know that that's where the level of effort goes up and that's where that's when i think really the deep dive is important too up front and even in organizing uh a project management office sometimes i'm supporting a project management office on a change communications and hr work stream sometimes on a smaller deal i'm just advising a senior executive because they want to be perceived as and accurately so as the person who's up front and they're not looking for a consultant per se but they recognize that they need a sounding board and someone who's can see the patterns um you know versus relying on the toolkit you know the best tools and templates you know we can all find those on the on the internet right but as far as actually seeing it that's different that's a different animal so mark let me i want to shift gears just a little bit sure um you know our audience runs the gamut you know from companies who have an hr department who can manage you know some of this integration stuff to folks who don't have any you know an hr department don't even have a head of hr i want to attack the the the companies first who have you know hr talent and a management team and infrastructure what is your sense are are hr groups gaining the knowledge and the expertise to do this themselves or you know or are they having to pull in you know experts like yourself for certain pieces you mean where's where's the evolution from an hr perspective uh and their skill set when it comes to m a yeah so i think in m a whether it's hr or any other group it's the it's the number of times you've done it before you know it's not it's it's the it's the battle tested person so the way i s that um what i typically see is one situation they've never done it before and that's less there but so then they want to bring in an advisor to help make sense right again patterns tool kits roadmaps all those things the second piece is they've done it before and it was a disaster it was a train wreck and maybe they didn't even integrate the past company they just gave up and left it there so they're almost looking to do two things um and then the third is they're a well-oiled machine everybody knows what to do but it's a bandwidth problem they've got too many deals going on so i see hr people who haven't done it before um and you know they're looking to improve their capabilities and or get that perspective for multiple deals or the second one the train wreck is you know there's some lessons learned and and maybe they in the organization in the back of their mind are thinking you know this is uh this is a company or a career killer yeah so i want to i want to do it that better that way so i think i i think the difference between an effective and an ineffective hr person all other things being equal is just you know number of deals yeah got it so let's talk to the folks out in in the community who don't have an hr function uh don't have that specific expertise in-house um you they they may or may not have a lead on integration yeah what should they be thinking about and doing as it relates to this function i think uh the primary thing they should do and i know this is a challenge with day jobs is pick someone who's accountable yeah and a good business person uh will be able to hit all those hr check boxes on maybe not on a mega deal but on most deals simply because a lot of it is you know um just good business sense you know if it's if it's something like oh there's a defined benefit program here or a pension plan or well sure you can find a specialist for that i think accountability is the key and i know that's a challenge with a day with a day job but i think that's the one single thing and and maybe the person you put in that job isn't isn't the person someone won't miss because they're maybe they're not contributing as well it's the it's someone that you're looking for uh to test maybe for that next position yeah get a high potential put them in there and uh you know they may need some external support or not but because of the way they are and that they're this is again a career maker for them yeah and i think that provides the focus the company needs i think that's an awesome point that you know you have to have somebody the end of the day who owns the integration with bucks stops with them and they have to have the authority to make stuff happen right yeah you know what i see too often is uh pieces get parceled out you know you're responsible for it so the head of it is going to take over just i.t and then you know you're giving you know your production folks responsibility for production and it's scattered everywhere yes and nobody really owns what's happening and nobody's working on the same timelines and they try their best to come together and talk about it but nobody really owns it and i think that's a great point and that's you know just a disconnect where there is a steering committee of senior executives is a larger deal and maybe there's a meeting once a week but if that person is running the integration management office doesn't have the authority or can't get air time other than once a week because you know red flags come up they don't just wait for friday morning at 10 o'clock right um and then all of a sudden things start getting reversed you know because that i think the head of whomever is responsible also needs to understand the organization and the people so well that they know how things get done and they're involved with the deal ideally as early as possible because then they understand the reason for the deal and all those other things so yeah some i think governance if it's too complex gets in the way but especially if it's the least objectionable person gets control of the project management office yeah they're not going to be able because really if they can't work across boundaries and they aren't respected in order to you know push what needs to be pushed it's it's going to be a bureaucratic office yeah yeah you know and no discussion about this would be complete unless we sort of you know brushed on and i think it's early stages right so i understand that our thinking might be evolving but you know with with covet and the pandemic and companies now you know running virtually and with distributed workforces this is adding a whole new element to how you evaluate you know the effectiveness of your talent and you know that network that we talked about earlier with the influencers i mean that could shift i mean it could be hard to really find those folks so any advice you know for folks that are doing due diligence now and how what they need to be thinking about with you know virtual employees and distributed workforces sure yeah i think it's a i think there's a couple different cuts at it and one maybe is the is the technical the technology side of it you know if um if your own technology how long did it take the organization to move people to that remote environment and how uh how well does it is the technology enabling that change and i think the other piece is is thinking about retention because if you're doing someone's doing uh let's say it's a an accounting task if they're doing it for one company but it's similar to the functions they perform somewhere else loses the human connection and that notion of the culture i mean if i'm doing it for a why can't i do it for b if b offers me more money you know i i used to care about my team i used to spend time with my boss but now i'm at a zoom meeting you know 30 minutes a week and and it breaks that bond so i think there's the retention piece there yeah and then there's also what i'm i'm i've built this into due diligence is looking at covid policies and procedures for returning to work simply because that can that can involve uh liabilities as well right so again and i think also the capabilities and and this goes to culture too dominic is is some cultures are especially that you know a fun culture we we go out once a week and that again that creates a certain bond not all leaders can lead remote employees though um and i think that's another area where it as as things go on and what's been demonstrated so far there's not going to be a the the old normal is unlikely yes better off we prepare for the new normal right and and that means that uh i think leaders have to take different approaches yeah you know they have to find out when what's the right time of the day to communicate with certain people you know it may not be twelve to one it may not be scheduling hour meetings and maybe 50-minute meetings so people can get to their next area but then feedback and and i think this is critical because the more people feel marooned the less likely they're they're going to uh be at the same level of performance and and again be a retentionist yeah i totally agree with that and i think you're right i mean i think management teams are going to have to learn new skill sets right learning to manage remotely you know personally speaking i prefer it because uh if done right you really focus on the right things you focus on the outputs and the performance and not so much about what you see or hear which you know sometimes clouds your judgment about what's really happening at the end of the day and who's being effective and who isn't um who's controlling the water cooler uh and appears to be productive but really not you know yeah so we started with you know story about you know where maybe you know integration didn't work so great maybe do you have a story we can end on here as we start to close up one that worked really well and why it worked well sure sure um you know i i when i the one i'm thinking about is uh smaller acquisition about what depends on the definition of small but let's for this let's say it's about 100 people yeah and i i think on this one specifically there was a recognition that one company really needed the sales force from the other company that was their success factor in the deal and i remember talking to clients who said i'm not looking to cut heads we sell basically the same things so there's really not much of a there's no reason to do this deal if we can't integrate our sales forces yeah and so the process of that was looking at how they were compensated and one was a hundred k base 10 levels of incentives the other was eat what you killed straight commission interestingly enough the acquirer was eat what you kill straight commission so the fear was right away wow when we come in these the best sales people are going to just jump so there was a lot up front starting in the early in due diligence on looking at the sales rep results identifying the ones that are in that top 20 percent and then developing individual retention plans and essentially the the whole the primary campaign around retention was about that group because it was so key and then in compensation to say well what we have to do is show them an opportunity to make more than they're making now but also give them a bridge because they plan their kids tuition and their mortgage on base salaries so there was a one-year transition where it was the best of plan interestingly enough and what they found is that the rest of the companies came together well they're very similar in terms of their customers and that but they were able to retain the sales people uh and they also thought that if they had waited till close again the uh the head hunters would have been managing their retention process right and it wouldn't have been to their favor so they identified the secret sauce they got in there early with with the with the risk management plan and then by the time the deal was announced all the individuals that were key they had someone assigned to talk to them be be kind of their coach onboarding coach if you will so they really really wound it all together and and that credit really uh goes to the head of sales for the acquiring organization yeah he saw that he saw what happens when it didn't work well and they had the right advisor too right yeah well take some credit where credit's due i appreciate that but the client always gets the credit mark this has been great i'm gonna one final question before we wrap up here um is there a question that i didn't ask you that that would be really helpful for folks in the audience to have heard um i think i want to go back to one we talked about a little bit okay but it's this notion of culture so you mentioned jim jeffries and you mentioned uh this 50 to 70 percent of why deals fail the answer to that if you're reading a lot of those articles starting with the original harvard business review one it was culture culture wasn't a fit um so where can that be a false assumption it's the definition of culture it may be that leaders couldn't get along with the other leaders it could be that the compensation pot wasn't right it could be they didn't communicate but the culture piece can be a get out of jail free card so i would say uh if in any situation where culture comes up as oh there's a culture problem in this it's got to be practical and pragmatic in terms of what that really means you know and again i i just use the how people treat each other in customers and how they do that normally in under stress who they promote who they uh who they hire who they fire that's where culture really really matters yeah a lot of it today can be white noise so again just tying those two things together of why deals fail and culture you really got to peel that onion got it it's like it's easy to blame the youngest sibling because they can't really stick up for themselves so that's exactly right you point to culture because why not uh yeah yeah the culture did it it's an easy thing to do right yeah that's right and and the paradox is that that when you go down that level to what you observe and behaviors and and the physical evidence and it starts to come out in due diligence you know you're able to get a bead pretty quickly i think on that whole human dimension so yeah so anyway it's great i think it's great advice got to peel back the onion don't let people get off the hook so easy yeah absolutely and accountability as well mark this has been tremendous it was such a pleasure to have you here if folks wanted to get in touch with you how could they reach you well the best way they can reach me is at my email address which is mark m-a-r-k dot wall stoney w-a-l-z t-o-n-i at crow.com or they can just give me a call at 616-550-5945 and i'm happy to chat about uh things share experiences we'll learn from each other and and if there's a path forward we'll know that too awesome all right mark thanks again for being here really appreciate it yeah thank you dominic thanks for having me i hope you enjoyed this episode all of today's information will be available in the show notes if you enjoy our content please remember to subscribe and review our podcast i look forward to seeing you again on the next episode of the m a unplugged podcast and until then please remember that scaling acquiring or selling a business takes time preparation and the proper knowledge you